There's no doubt the third quarter was a rough one for the oil industry and for Halliburton (NYSE:HAL). That being said, the oil-field service company reported pretty resilient third-quarter results before the market opened this morning. Yes, both its revenue and earnings are down substantially over the past year, but the company is performing better than expected during the downturn, which is no small fete. More importantly, Halliburton is very excited about its upside when the oil market does finally start to recover.   

A look at the numbers
Halliburton reported revenue of $5.6 million, which was about $60 million less than what analysts expected to see. Revenue was also down 6% from last quarter's $5.9 billion and well off the $8.7 billion in revenue it delivered in the second quarter of last year.

The obvious culprit here is the downturn in the energy market, which continued to impact activity during the quarter. Halliburton noted in its earnings release that its key North American segment experienced "another step down in activity levels throughout the third quarter, accompanied by further price reductions across the business." That segment, however, wasn't the only one affected by weak activity levels last quarter:













North America






Latin America












Middle East/Asia






Data source: Halliburton Company press release. Chart by author. (Note: in millions of dollars.)

Having said that, the company's international segments were actually fairly resilient. In fact, Halliburton President Jeff Miller boasted in the earnings release that the company was "pleased with our third quarter results, especially the resilience of our international business, where we outperformed our largest peer (Schlumberger (NYSE:SLB)) on a sequential and year-over-year basis for both revenue and margins." Outperforming Schlumberger internationally was a real coup for the company because Schlumberger dominates markets outside the U.S. Furthermore, by specifically pointing out its outperformance Halliburton got in a little dig against the market leader after Schlumberger's report last week caused concerns that Halliburton was in for a very rough quarter

Thanks in part to that resilience overseas, Halliburton's earnings were slightly ahead of analysts' expectations. While the company reported a headline loss of $55 million, or $0.06 per share, that was due to several non-recurring items, including asset writedowns, severance costs, and acquisition-related costs stemming from its pending merger with Baker Hughes (NYSE:BHI). If we adjust for these charges, it earned $265 million, or $0.31 per share. That beat the consensus estimate by $0.04 per share.

One of the real keys to beating earnings expectations was its focus on costs. A shining example was its operations in the Eastern Hemisphere, where the company experienced a 5% sequential decline in revenue, but its net operating margins held up thanks to a "relentless focus on cost management," according to the company.

A look at the outlook
Looking ahead, Halliburton expects that the challenges in the oil market will continue to put pressure on its results. As a result, its first focus will be on the things it can control, which are its costs, execution and ability to deliver best-in-class service quality to its customers. However, the company remains just as focused on the future by continuing to look through the cycle to position itself to accelerate growth when conditions improve.

A major part of that future focus is closing its pending Baker Hughes acquisition. The company continues to remain both "enthusiastic" and "fully committed" to closing this deal. Further, and more importantly, it still remains confident that it will be able to achieve nearly $2 billion in annual cost synergies after the deal closes, this is despite the fact that it has offered additional asset dispositions to appease regulators.

The reason the company remains so optimistic about the Baker Hughes merger really boils down to its outlook for the future. According to CEO Dave Lesar, in reiteratering the company's outlook in the earnings release:

We are not going to try to call the exact shape of recovery, but we expect that the longer it takes, the sharper it will be. Ultimately, when this market recovers we believe North America will respond the quickest and offer the greatest upside, and that Halliburton will be positioned to outperform.

This outlook is based on two key characteristics of North American shale plays. First, they offer higher returns and are faster cycle plays (i.e., they deliver production faster) than international oil and gas basins, suggesting that the recovery in activity level will be much faster in shale plays when it takes root. Furthermore, the actual service activity needed to bring a new well on line is right in Halliburton's service sweet spot as $0.50 of every $1 spent on a shale well is spent on services that the company provides, which is twice what companies spend on its services outside North American shale. 

Investor takeaway
Halliburton is making the best of a very tough oil-field service market. While its results were clearly affected by the difficult operating conditions, it showed a lot of resilience, especially internationally as it outperformed its chief rival, Schlumberger in its own backyard. In addition, while it remains focused on managing during the downturn by controlling what it can, it is also positioning its business for the eventual upturn by completing its merger with Baker Hughes.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.